SOCIAL FINANCE

What partnerships between Development Institutions and Zakat Funds to achieve the Sustainable Development Goals?

The progress made in recent years as a result of the efforts made by governments and all development partners, with the ultimate goal of achieving the Sustainable Development Goals (SDGs), is now seriously compromised. This is because the global extreme poverty rate, which has been declining for over twenty years, has increased in 2020 (between 88 and 115 million additional people have fallen into poverty, according to the World Bank). There is a degree of uncertainty about prospects and the achievement of the global goals. This situation is attributable to the adverse effects of a combination of three main factors: the COVID-19 pandemic, recurrent armed conflicts, and climate change. This problematic context aggravates a situation where the annual financing gap at the time of the adoption of the MDGs in 2015 was already estimated at US$2,500 billion. To remedy this situation, new sources of financing should be sought and mobilised in order to re-orientate the world economy in the right direction by financing the SDG projects. In this context, some Islamic finance products (Sukuk, real estate Murabaha, ...) are already mobilised for this purpose. However, its potential remains poorly exploited insofar as Islamic social finance, whose principles and objectives align with many SDGs, remains underdeveloped in many countries. It is clear that Islamic social finance through Zakat could be one of the new alternative sources to explore. Indeed, according to the World Bank (2016), the potential of Zakat could reach US$1,000 billion in the coming years. It is therefore certain that such a source of financing cannot be ignored insofar as, on the one hand, it constitutes enormous financial resources that are immediately available, and, on the other hand, Zakat is perfectly consistent with the objectives pursued through the SDGs. In this context, partnerships between international institutions in the field of development and the institutions in charge of Zakat funds should be encouraged and strengthened to unlock them and put them at the service of the SDGs.

Zakat is an Arabic word that could be translated into French as "legal alms". It is the third pillar of Islam. Therefore, it is an obligation for every Muslim whose savings in a given year reach a certain amount to give part of it (a proportion of 2.5%) to the needy in his community. This act of generosity and solidarity is meant to ensure the purification of the donor's wealth. Seen from this angle, Zakat has a double advantage. On the one hand, it purifies the donor's wealth without compromising their religious faith. On the other hand, the resources distributed allow the beneficiaries to have a minimum to meet their basic needs. In sum, if the governance of Zakat is well coordinated, it could be of great benefit to society as a whole.

Historically, Zakat is considered the first solidarity tax paid by Muslims. The poor are excluded from this obligation as they are the beneficiaries, along with the needy, travellers, and staff of Zakat institutions, ... In the past, no legal authority or institution was in charge of collecting or controlling the donation's effectiveness. The principle was to trust the integrity of those who were eligible. Nowadays, however, it is common to see a certain degree of organisation in the governance of Zakat within the Muslim community, where sometimes states are heavily involved.

From a historical or contemporary perspective, Zakat has continuously played a vital social and economic role in the Muslim community. At the social level, giving out Zakat action is primordial in maintaining cohesion within society thanks to its concrete results on the individuals and the society as a whole. Indeed, through its policy of wealth redistribution, with the wealthy being led to transfer a proportion of their wealth to the underprivileged, Zakat makes it possible to reduce and alleviate the impact of poverty. This transfer of resources enables the beneficiaries to meet their basic needs, thus legitimising their existence. Zakat thus makes it possible to establish a system of social solidarity and sharing within communities, which helps to maintain a certain social balance and an acceptable standard of living. Economically, the role of Zakat is equally crucial. Firstly, Zakat is an excellent means of combating hoarding, which is even forbidden according to the Islamic religion. By paying Zakat, significant financial (and nonfinancial) resources are immediately injected into the economy by donors. This promotes the availability of liquidity and its circulation. Secondly, Zakat has a multiplier and accelerator effect on overall income in an economy, unlike state taxes, which are known to have a negative shock on the income of economic agents, according to economic theory on macroeconomic equilibria. This is evidenced by the fact that Zakat is systematically transformed into a socio-economically worthwhile expenditure for the beneficiaries. Nevertheless, the benefits can also be seen in the economy as a whole through a knock-on effect.

ZAKAT HAS A DOUBLE ADVANTAGE. ON THE ONE HAND, IT PURIFIES THE DONOR'S WEALTH WITHOUT COMPROMISING THEIR RELIGIOUS FAITH. ON THE OTHER HAND, THE RESOURCES DISTRIBUTED ALLOW THE BENEFICIARIES TO HAVE A MINIMUM TO MEET THEIR BASIC NEEDS.

Finally, Zakat can help curb unemployment and stimulate employment depending on how the funds are used. Indeed, the funds can be used directly for consumption or indirectly through the creation of new opportunities by investing them in social projects that primarily benefit the poor. In the latter case, Zakat resources would create sustainable jobs and reduce unemployment among Zakat recipients.

The efficient and effective use of Zakat funds in a strategic partnership type of arrangement is likely to contribute to the achievement of the SDGs.

Contextualisation of SDGs.

The SDGs, adopted in September 2015 by 193 countries at the United Nations (UN) headquarters as part of the 2030 Agenda for Sustainable Development, set out a fifteen (15) year plan to achieve these goals. They follow on from the eight (8) Millennium Development Goals (MDGs) and constitute the seventeen (17) priorities for humanity to achieve economic and social development that includes respect for the planet.

The adoption of the MDGs came at a time when the effects of climate change, which is a result of the abusive production activities of humans on the planet, are increasingly perceptible in terms of recurring disasters (floods, droughts, famine, drops in productivity, rising temperatures, among others). The SDGs are therefore supposed to take into account the achievements of the MDGs, which were intended exclusively for developing countries, by integrating other aspects of development that were not taken into account in a cross-cutting way. In this context, they constitute a universal call to action to eradicate poverty and hunger, to fight against inequalities of all kinds by promoting access to education for all and appropriate health care. The MDGs also encourage the pursuit of planet-friendly economic growth to ensure that future generations have adequate resources at their disposal. Achieving the goals requires a framework for transnational cooperation between states.

The mandates Zakat is meant to fulfil are consistent with the targets of many of the SDGs. As such, it is conceivable that these funds could be effectively directed towards their achievement. First and foremost, Zakat's mission to fight poverty by enabling the poor to have the minimum resources to ensure their survival is consistent with SDG 1: "Eradicate extreme poverty and hunger" and SDG 2: "Zero Hunger". SDG 1 aims to eradicate extreme poverty by 2030, halve the proportion of men, women and children living in poverty in all its dimensions, and build the resilience of the poor and vulnerable. SDG 2 aims to eradicate hunger by ensuring that poor and vulnerable people have access to sufficient, safe and nutritious food throughout the year. Furthermore, by promoting the redistribution of wealth from donors to recipients, Zakat can achieve SDG 10, whose main target is to rapidly and sustainably increase the income of 40% of the poorest people by empowering them. It aims to reduce inequalities within and between countries.

Finally, the collaboration between donors and Zakat funds to better organise the collection and distribution of funds to beneficiaries is in line with the objectives of SDG 17, which calls for establishing various partnerships to achieve the SDGs. As can be seen, the missions assigned to Zakat and those of the SDGs converge. It would be desirable for its funds to be put at the service of these goals. Therefore, several forms of cooperation will likely be established between

partner development institutions and Zakat foundations to distribute funds effectively to achieve the SDGs.

Islamic social finance occupies an important place in the Islamic economic system due to the mission assigned to Zakat. Several institutions, including the World Bank, the United Nations Development Programme (UNDP) and the United Nations Refugee Agency, have recognised Zakat's role in achieving the SDGs. In this vein, UNDP has already committed to harnessing Zakat resources to fund SDG-related projects by signing partnerships with Zakat institutions. On its part, UNHCR has established a Zakat fund for refugees.

Having recognised Zakat's funding potential, UNDP has entered into a partnership agreement with the World Zakat Forum (WZF). WZF is a multilateral organisation that brings together the

world's leading zakat agencies. Working closely with various global Muslim organisations such as the Organisation of Islamic Cooperation (OIC) and IsDB, it is committed to developing the global practice of Zakat and contributing to humanity in the context of universal solidarity. To make the partnership a reality, UNDP has begun assisting BAZNAS (Badan Amil Zakat Nasional), the Indonesian agency responsible for collecting Zakat, on how to use Zakat funds to finance local SDG plans. Based on its experience as a development partner, knowledge of the field and expertise in projects with high social impact, UNDP identifies the projects to be funded, and BAZNAS disburses the funds exclusively from the Zakat resources collected. The inaugural project of this partnership was launched in 2017. It consisted of financing renewable energy projects for the benefit of disadvantaged communities. In total, more than 803 households, including nearly 5,000 beneficiaries in four villages in the province of Jambi (located on the east coast of Sumatra Island), were provided with access to electricity. This project has increased the income-generating capacity of the local beneficiaries, substantially improving their living conditions. Within the same partnership, in 2018, a UNDP initiative was funded by BAZNAS to assist the affected populations of Lombok and Palu following the double disaster earthquake/tsunami - that hit these two islands. Just

Islamic institutions intend to get more involved in funding UNHCR's humanitarian action. A partnership agreement has been signed between the UNHCR and the Islamic Solidarity Fund for Development (ISFD), the Islamic Development Bank (IsDB) subsidiary in charge of the fight against poverty. The provision of this fund will enable UNHCR to intensify its assistance to refugees and IDPs.

recently, in 2020, a similar partnership was concluded in Africa between the government of Mauritania and UNDP. It was part of the drafting of the national development plan known as Stratégie de Croissance Accélérée et Prospérité Partagée (Strategy for Accelerated Growth and Shared Prosperity), SCAPP 2016-2030. The Mauritanian government used UNDP's technical assistance to set up a regulatory infrastructure to formalise and structure the collection and distribution of Zakat, which was previously unregulated and fragmented. Ultimately, the Mauritanian government intends to take advantage of the potential of Zakat to finance development projects.

Being aware of the strength of the resources and their immediate availability, UNHCR initiated a "Refugees Zakat Fund" for refugees in 2019. This is a way for UNHCR to mobilise zakat resources to achieve some of its missions: to provide refugees, the displaced, and stateless people with adequate protection and the basic amenities they need. To carry out this mission, UNHCR has sought legal advice (fatwas) from Islamic institutions. Several of them (the International Academy of Islamic Fiqh based in Saudi Arabia, the Fatwa Council of Tarim, the Council of Scholars of Morocco, among others) issued a favourable opinion, authorising UNHCR to collect and distribute Zakat. Critical to the success of the initiative is the use of digital technology. To this end, UNHCR has developed and launched an interactive application on its website that can be accessed anywhere and anytime, making it easier for donors to make secret and secure zakat payments. A mobile version, called "Refugees Zakat Fund App", is now available and can be downloaded from the App Store, Google Play and Huawei App Gallery. By redistributing 100 per cent of the resources collected through its mechanism to the areas where help is needed the most, UNHCR stands out as a trustworthy and effective international partner whose actions align with the values and principles of Zakat. To make the process transparent, UNHCR not only publishes an annual report on the state of Islamic philanthropy but also allows an independent observer to visit the field to conduct audits and make recommendations where appropriate. The UNHCR reports (available via this link (https://zakat.unhcr.org/fr/rapports)) outline the total resources raised and how they were utilised. According to the latest annual report on Islamic philanthropy, published on 25 March 2022, UNHCR reported collecting a pool of USD 35.4 million in zakat funds for refugees in 2021. This fund comprises 66.6% Zakat, 33.13% Sadaqah (voluntary donations), and 0.27% Zakat Al Fitr (Zakat paid at the end of the month of Ramadan), assisted at least 690 families, or more than 1.2 million beneficiaries consisting of refugees and IDPs.

BEING AWARE OF THE STRENGTH OF THE RESOURCES AND THEIR IMMEDIATE AVAILABILITY, UNHCR INITIATED A "REFUGEES ZAKAT FUND" FOR REFUGEES IN 2019.

Islamic institutions intend to get more involved in funding UNHCR's humanitarian action. A partnership agreement has been signed between the UNHCR and the Islamic Solidarity Fund for Development (ISFD), the Islamic Development Bank (IsDB) subsidiary in charge of the fight against poverty. The provision of this fund will enable UNHCR to intensify its assistance to refugees and IDPs.

The NGO Save The Children received a certificate from Shaykh Haytham Tamin's Utruji Foundation on 22 February 2022 in London, authorising it to collect and distribute zakat funds as part of its humanitarian missions in favour of children throughout the world. This fundraising would allow the NGO to diversify and strengthen its actions in the field.

ACCORDING TO THE LATEST ANNUAL REPORT ON ISLAMIC PHILANTHROPY, PUBLISHED ON 25 MARCH 2022, UNHCR REPORTED COLLECTING A POOL OF USD 35.4 MILLION IN ZAKAT FUNDS FOR REFUGEES IN 2021. THIS FUND COMPRISES 66.6% ZAKAT, 33.13% SADAQAH (VOLUNTARY DONATIONS), AND 0.27% ZAKAT AL FITR (ZAKAT PAID AT THE END OF THE MONTH OF RAMADAN), ASSISTED AT LEAST 690 FAMILIES, OR MORE THAN 1.2 MILLION BENEFICIARIES CONSISTING OF REFUGEES AND IDPS.

There are strong connections between the missions assigned to Zakat and the achievement of the SDGs. Some development partners have already started to use Zakat resources to finance high-impact social projects that benefit the poor and needy. Estimated by the World Bank to be between USD 200 and 1000 billion, each year, enormous financial resources are mobilised worldwide through Zakat. It is, therefore, necessary to strengthen and multiply the partnerships between Zakat institutions and those in charge of conducting development projects within the framework of the SDGs. Such partnerships, if well developed, could help to better organise and modernise the collection of Zakat and its use in order to achieve sustainable development goals.

Written by

BANKING TECH TAKATECH WAQF TECH ZAKAT TECH HALALTECH GREENTECH WEALTH TECH INCUBATION TRAINING MARKET INTELLIGENCE SHARIA AUDITING INNOVATION LAB HACKATON & EVENTS NETWORKING